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the extension to individuals of small loans to be used for income-generating activities that will improve the borrowers' living standards. The borrowers, most of whom usually are poor women, do not qualify for a conventional bank loan, and the loans, which may be as little as $20 for very poor borrowers in some developing countries, typically are for a short term (a year or less), are not secured by collateral, and require repayment in weekly installments.

Because of the high cost, relative to the loan size, of running a microcredit program, interest rates on microcredit loans are high, sometimes as much as 35%; in the case of microcredit loans by commercial institutions, the rates may be even higher. Peer support groups consisting of other borrowers are often a component of microcredit programs, and help ensure that the borrowers repay the loans. Successful microcredit programs typically also focus on improving the education and health care of their borrowers, and do not allow individuals to borrow more than they can afford to repay.

The concept of microcredit was developed in 1976 by Muhammad YunusYunus, Muhammad,
1940–, Bangladeshi economist and banker, b. Chittagong (then in British India), grad. Vanderbilt Univ., Nashville, Tenn. (Ph.D. 1971). Yunus, who taught economics in the United States after receiving his doctorate, returned to his homeland when it won its
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, a Bangladeshi economist, as a means of alleviating the poverty and improving the lives of the very poorest inhabitants of Bangladesh. The Grameen Bank, formally established in 1983 through Yunus's efforts, expanded microcredit with the help of loans and grants, and is now self-supporting. Microcredit programs and institutions have been created in many other nations in Asia, Africa, and Latin America. Similar programs have been established to aid individuals in developed countries who do not qualify for conventional loans.

Although microcredit programs were originally operated by nonprofit organizations, a number of for-profit companies also focus on microcredit lending. The term microfinance, although often used as a synonym for microcredit, is especially used to describe commercial microlending and also may include other financial services offered on a small scale to the poor, such as bank accounts that do not require minimum balances.

Some critics see microcredit misfocused, because it is too limited to alleviate poverty in general, especially in societies where many causes other than restricted access to credit have resulted in pervasive impoverishment, but it has nonetheless improved the lives of millions of individuals and their families. The development of for-profit microlending, on the other hand, disturbs nonprofit microcredit lenders because the need for profits potentially shifts microcredit lending to those who are less poor while diminishing the resources available and the willingness to lend to the very poorest. However, in India, where for-profit microlending grew rapidly in the first decade of the 21st cent., microfinance companies in some cases lent indiscriminantly to borrowers who lacked the means to repay the loans, leading to a sharp rise in defaults in 2010 and a public backlash against the industry. Backlashes against microcredit programs and institutions (including the Grameen Bank) have also occurred in other nations, sometimes for politically motivated reasons.

References in periodicals archive ?
India-based Yes Bank (NSE: YESBANK) has announced a plan to slow its micro lending activities through business correspondents.
The office of the Davao Micro Lending was also reduced to ashes while an adjacent establishment was partially damaged.
The Bank of Kigali Limited engages mainly in personal banking, business banking and micro lending.
In addition to the general overview of the whole industry, it also provides a summary of the 2012/13 budget, and updated overviews of the different sub sectors such as commercial banking, the insurance industry, micro lending, the accountancy sector among others"
As revealed in Table 2, the implementation of information, education, and communication (IEC), savings mobilization, capacity building, and micro lending was generally adequate and effective.
Rang De, another micro lending venture headquartered in Bangalore, was launched by the husband and wife duo Ramakrishna NK and Smita Ram.
Recently Bangladesh's Prime Minister stated that Grameen and other micro-lenders in the country were "sucking blood from the poor in the name of poverty alleviation" and the government has enacted laws constraining micro lending.
The conference stressed the importance of subsidizing the micro lending and finance and expand its fields and geographical coverage to target about 5 million small borrowers.
There is a natural overlap for credit unions, especially community credit unions," said Grady Hedgespeth, SBA director of office of financial assistance, on the industry's reputation with micro lending.
Micro lending is a practice that started in Bangladesh, but it's becoming popular in the West.
3 million, coupled with $600 million in capital from other donors has produced over 300,000 loans worth in excess of $2 billion for small and micro lending in thirteen different countries.
Yunus' plan for micro lending has evolved and spread into other parts of the world, including rural Arkansas under Clinton's governorship, gaining popularity among traditional banking institutions.